Overseas shipments dropped 0.3 percent from a year earlier,
customs data showed on Oct. 12. Consumer prices rose 3.1 percent
as food costs advanced the most since May 2012, statistics
bureau figures showed today in Beijing. New yuan loans topped
estimates today in central bank data while the broadest measure
of credit fell from August, as authorities try to support
expansion without boosting shadow finance.

The trade and inflation reports add to Li’s challenges in
defending the government’s 7.5 percent expansion goal for this
year after he introduced steps including faster railway spending
and tax cuts following a two-quarter slowdown. The International
Monetary Fund cut its global growth outlook last week as capital
outflows further weaken emerging markets.

“A big risk for China now is that the government has to
scale back its domestic pro-growth policies while external
demand fails to grow to make up the gap,” said Xu Gao, chief
economist with Everbright Securities Co. in Beijing, who
previously worked at the World Bank. “If that happens, it will
result in very weak growth starting next year.”

Yuan Gains

The yuan strengthened 0.2 percent against the dollar after
the central bank raised the currency’s reference rate to a
record, while China’s benchmark money-market rate declined for a
third day. The Shanghai Composite Index of stocks rose 0.4
percent.

The increase in China’s consumer-price index compares with
the 2.8 percent median estimate of 44 economists in a Bloomberg
survey, after a 2.6 percent gain in August. The decline in the
producer-price index narrowed to 1.3 percent from 1.6 percent
the previous month. The government is targeting 3.5 percent
consumer inflation for the year.

“As the inflationary pressure has picked up, the central
bank is unlikely to change the tightening bias” in monetary
policy for the rest of the year, Liu Li-Gang, chief Greater
China economist at Australia & New Zealand Banking Group Ltd. in
Hong Kong, said in a note today.

New yuan loans in September were 787 billion yuan ($129
billion), the People’s Bank of China said, compared with the 675
billion yuan median analyst estimate. Money-supply growth slowed
to 14.2 percent while the broadest measure of credit, aggregate
financing, fell from a year earlier to 1.4 trillion yuan.

Forex Reserves

China’s foreign-exchange reserves, the world’s largest,
rose to $3.66 trillion in September from June’s $3.5 trillion,
the biggest quarterly gain in more than two years, central bank
data showed.

The pickup in September’s CPI was driven by eggs,
vegetables, fruits and pork, as well as non-food items including
fuel and tourism, according to a statistics bureau statement
citing statistician Yu Qiumei. Non-food prices rose 1.6 percent
in September, below a 2 percent pace for a 20th month.

The bureau will publish third-quarter gross domestic
product on Oct. 18. The economy probably expanded 7.8 percent
from a year earlier, according to a Bloomberg survey, up from
the second quarter’s 7.5 percent pace.

Premier Li said last week in Brunei that GDP grew more than
7.5 percent in the first nine months of 2013, putting the
government on track to achieve its full-year target of the same
pace. He also told U.S. Secretary of State John Kerry of China’s
“concern about Washington’s debt-ceiling problem,” the
official Xinhua News Agency said.

September’s trade slowdown resulted from a high basis of
comparison with last year, the customs administration said in a
statement.

‘True Story’

“Sometimes a single month’s data can’t tell the true story,
and there are other factors as well,” Zheng Yuesheng, a customs
spokesman, said at an Oct. 12 briefing when asked about the
export drop. “I see this as a seasonal thing.”

The median estimate in a Bloomberg survey was for a 5.5
percent gain in September exports from a year earlier after a
7.2 percent pace in August.

Sales to South Korea, Taiwan and the European Union
declined from a year earlier and growth in shipments to the
Association of Southeast Asian Nations slid to 9.8 percent from
August’s 30.8 percent pace. Exports to the U.S. rose 4.2 percent,
slowing from 6.1 percent in August.

“There has been an export recovery since July to the U.S.
and Europe but it’s been pretty weak,” said Shen Jianguang,
Hong Kong-based chief Asia economist at Mizuho Securities Asia
Ltd. “The driving force for China’s recovery at this stage is
still housing and infrastructure investment.”

Distortions that began late last year from fake export
invoices used to disguise capital inflows, fewer working days
due to the timing of the Mid-Autumn Festival holiday, and
currency volatility in Southeast Asia have left the trade
figures “quite murky,” Shen said. Regulators in May cracked
down on over-invoicing of exports.

September imports rose 7.4 percent from a year earlier,
topping the median 7 percent forecast in a Bloomberg survey. The
$15.2 billion trade surplus compared with a median projection of
$26.25 billion and $28.5 billion in August.